Yelp Inc (YELP), Angie’s List Inc (ANGI), TripAdvisor Inc (TRIP): Are Online Reviews Destroying Small Business?

Starting a small business is a brave endeavor with a US failure rate of 44%. Online review sites can drastically alter the odds one way or another.

The bad news

Yelp Inc (NYSE:YELP), Angie’s List Inc (NASDAQ:ANGI), and TripAdvisor Inc (NASDAQ:TRIP), are the three go-to sites for consumer online reviews on local business, services, and travel, respectively. The one with the greatest impact on small business is Yelp Inc (NYSE:YELP).

According to a Harvard Business School study on Seattle restaurants and Yelp Inc (NYSE:YELP) by Michael Luca, a one-star Yelp Inc (NYSE:YELP) upgrade can add 5%-9% to the top line for a small restaurant. A Yelp Inc (NYSE:YELP) review by their Elite (most prolific) reviewers can have twice the impact as a non-elite review. Interestingly, Yelp Inc (NYSE:YELP) has virtually no effect on chain restaurants.

What the study didn’t address is that bad reviews can destroy a business.  A negative review is more typical than something glowing. Social Media Club quoted Josh Harcus, a social media strategist,  “Yelp is considered the whining platform, ” and more darkly, “Also with the ‘filter,’ Yelp removes positive reviews … at will.”

There’s little the small business owner can do in the face of vindictive reviews. Yelp offers little redress except  guidelines on communicating with the reviewer. It protects consumers from fake reviews but not the business owner from vitriolic trolls or unscrupulous rivals.

A case study of how not to respond is Amy’s Baking Restaurant in Arizona and its online review firestorm that went viral filled with Amy’s management’s profanity-filled rant. The other side of the coin is that of a Yelp and Angie’s List Inc (NASDAQ:ANGI) poster alleging theft and damage to her home by her contractor is being sued for defamation to the tune of $750,000 by same contractor.

These online review sites are immune to lawsuits by businesses receiving negative reviews as they are covered under the Communications Decency Act of 1996. As these sites are not legally accountable to businesses whose reputations are defamed what’s a small business to do? In an increasingly litigious world common courtesy and common sense would prevent business owners and their customers from escalating an exchange to DefCon 1 in the face of negative reviews.

Sometimes a sense of humor can help.